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Half Truths, Empty Promises, and Hot Coffee: the Economics of Tort Reform

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Half Truths, Empty Promises, and Hot Coffee: the Economics of Tort Reform TRACZ 2018 HALF TRUTHS, EMPTY PROMISES, AND HOT COFFEE: THE ECONOMICS OF TORT REFORM Eliot T. Tracz* I. INTRODUCTION .............................................................................. 312 II. THE GOALS OF TORT LAW ........................................................... 314 A. Why Have Tort Law in the First Place? ............................ 314 B. The Goals of Tort Law ...................................................... 315 i. Reducing the Number and Severity of Accidents ....... 315 ii. Reducing Societal Costs from Accidents ................... 316 iii. Reducing the Costs of Administering Accidents ...... 318 III. WHAT IS TORT REFORM? ............................................................ 319 A. Brief History of Tort Reform ............................................ 319 B. Arguments for Tort Reform .............................................. 320 i. Increased Litigation and Greedy Lawyers ................... 321 ii. Hot Coffee and the Undeserving Plaintiff .................. 322 iii. Harm to Physicians.................................................... 323 C. Common Methods of Tort Reform.................................... 323 i. Damage Caps ............................................................... 323 ii. Changes in Liability Rules ......................................... 324 iii. Limiting Attorney Fees ............................................. 324 IV. ARGUMENTS AGAINST TORT REFORM ....................................... 325 A. Damage Caps as a Disincentive to Caution ...................... 325 i. Regulation Through Litigation v. Regulation Through Legislation ................................................................ 325 ii. Moral Hazard .............................................................. 327 B. Existing Liability Rules Limit the Filing and Prosecution of Frivolous Law Suits ........................................................ 327 i. Defining Effective Negligence Rules .......................... 327 ii. Applying Negligence Rules to Tort Reform .............. 329 C. Limiting Attorney’s Fees Would Result in Less Access to Justice ............................................................................. 330 V. ANALYSIS ..................................................................................... 331 A. Tort Reform Fails to Achieve Either of the Main Goals of * Judicial Clerk to the Hon. Kathy M. Wallace of the Minnesota Third Judicial District. I am a graduate of DePaul University College of Law. I would like to thank Kellie Tracz for her support and her willingness to read drafts at odd hours. All mistakes or errors are my own. 311 TRACZ 2018 312 SETON HALL LEGISLATIVE JOURNAL [Vol. 42:2 Accident Law .................................................................. 331 i. Tort Reform Fails to Dispense Justice ......................... 331 ii. Tort Reform Fails to Reduce Accident Costs ............. 332 B. Tort Reform Fails to Achieve the Sub-goals of Accident Law ........................................................................................ 333 i. Tort Reform Does Not Attempt to Reduce the Frequency or Severity of Accidents ........................................... 333 ii. Tort Reform Fails to Address Societal Costs of Accidents .................................................................................. 334 iii. Tort Reform Affects Administrative Costs But Only at the Expense of Justice ............................................... 335 VI. CONCLUSION ............................................................................... 335 I. INTRODUCTION Mr. Meyer Proctor, a seventy-year-old man, filed a product liability lawsuit against The Upjohn Company after he lost vision in his left eye. The jury awarded Mr. Proctor $127 million.1 Such were the facts as relayed by Senator John Danforth to members of the United States Senate during a 1994 speech in favor of a tort reform bill.2 However, this recitation was not an accurate portrayal of Proctor v. Davis and for his part Senator Danforth never intended his story to be completely correct.3 Rather, it is very likely that Senator Danforth purposely made his rendition of Proctor v. Davis sound outrageous in an attempt to portray an out of control tort system, which made it difficult for businesses to operate under an onslaught of frivolous lawsuits and exorbitant jury verdicts.4 Anecdotal evidence, similar to the one offered by Senator Danforth, was meant to encourage tort reform. Tort law, like many other areas of the law, is concerned with the proper allocation of costs. Torts are civil wrongs, from the Latin “tortus” which means “twisted.”5 In modern times a tort is an injury or wrongful 1 CARL T. BOGUS, WHY LAWSUITS ARE GOOD FOR AMERICA: DISCIPLINED DEMOCRACY, BIG BUSINESS, AND THE COMMON LAW 1 (2001). 2 BOGUS, supra note 1, at 6. 3 Proctor v. Davis, 656 N.E. 2d 23, 23 (App. Ct. Ill. 1997) (The case itself actually settled for just over $6 million. In reality the suit was a joint medical malpractice suit and product liability suited filed because Mr. Proctor’s retina had become detached after receiving an injection Depo-Medrol, a drug not tested for intraocular injection). 4 See id. (reversing trial court judgment against Upjohn); also see 677 N.E. 2d 918, 918 (Ill. 1997) (vacating the prior decision on procedural grounds; and 682 N.E. 2dd 1203) (App. Ct. Ill. 1995) (affirming judgment against Upjohn as to compensatory damages and reducing punitive damages award). 5 Edward Coke, Commentary on Littleton, SELECTED WRITINGS OF SIR EDWARD COKE, VOL. I (1586) (“Torts” are so called because they are wrested or crooked, as opposed TRACZ 2018 2018] HALF TRUTHS, EMPTY PROMISES, AND HOT COFFEE 313 act for which an action will lie, distinct from a contract.6 Fittingly, tort law includes personal injury adjudication. It is fair then, to refine the prior statement to say that tort law is concerned with the proper allocation of costs in disputes between injured parties and those who have caused the injury. The costs of the tort system are high to both the injured parties who lose income, quality of life, and often life itself; and to the parties responsible for the injuries who must pay damages if found liable. Tort reformers, however, ignore the costs to the injured parties, in order to decry the costs to the injuring (often corporate) parties. The American Tort Reform Association (“ATRA”) stated that in 2003, the cost of the United States tort system was $246 billion.7 That amount represented a 34.5% increase in cost from 2000.8 By 2009, the amount had further increased to $251.8 billion.9 This Article examines several arguments in favor of tort reform using economic analysis. By using economic analysis, this Article dispenses with the weak anecdotal evidence and disingenuous political rhetoric to objectively address the strengths and weaknesses of the tort system. It follows that an objective analysis, not political rhetoric, ought to determine whether there is truly a need to reform the tort system. Part II examines the goals of tort law from an economic perspective. Part II analyzes the work of Judge Guido Calabresi who distilled the aims of tort law down into three articulable goals. Additionally, Part II analyzes a framework created by the author for objectively examining the effects of tort reform. Part III begins with a brief history of the tort reform movement. Furthermore, Part III discusses several of the major arguments employed in support of tort reform. Finally, this Article address several methods of tort reform that are often suggested or implemented by various states. Part IV addresses several arguments against tort reform. Part IV examines a theory that tort law, being based on common law, is inherently more efficient than either state or federal legislative efforts to allocate injury costs. Finally, Part IV employs the framework developed in Part II to analyze the arguments for and against tort reform. to that which is right and straight). 6 Sir William Blackstone, 3 COMMENTARIES 177 (1775). 7 American Tort Reform Association, Facts About Tort Liability and its Impact on Consumers, http://web.archive.org/web/20100731070852/http://www.atra.org/wrap/files.cgi 7963_howtortreform.html (last visited May 10, 2018). 8 Id. 9 Towers Watson, U.S. Tort Cost Trends 2011 Update, http://www.casact.org/library/st dynotes/Towers-Watson-Tort-Cost-Trends.pdf (last visited May 10, 2018). TRACZ 2018 314 SETON HALL LEGISLATIVE JOURNAL [Vol. 42:2 II. THE GOALS OF TORT LAW A. Why Have Tort Law in the First Place? Tort law creates rules for how courts must apportion liability for accidents. Tort reformers often decry these rules as being unfair to defendants, and advocate for change. Negligence is the most common tort claim, and therefore, this Article will focus mainly on negligence rules and tort reform. In examining whether tort reform is necessary, a good starting point is whether there should be a rule of negligence at all. To answer this question, it is first necessary to picture a world in which the loss associated with an injury falls solely upon the injured party. Assume that an individual (“Pedestrian”) intends to cross a street at a cross walk where another party (“Driver”) is making a right-hand turn. For both parties the cost of exercising no care at all is $0 while the cost of exercising due care is $10. Further, assume that an accident is certain to happen unless both parties exercise due care. The cost of an accident is $100 and there is a one in ten chance that Pedestrian will
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